ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

Nordic Mills, a listed entity, has been audited by Halvorsen & Co for six years. The firm provided non-audit services in prior years, and fees in the current year are: audit 200,000; permitted non-audit services 50,000; services for a subsidiary outside the group audit scope 30,000. Halvorsen proposes to also take on internal audit outsourcing involving management-type decisions on the internal control design. Which is the most appropriate evaluation?

The proposed internal audit work would involve making management decisions, so it is a prohibited management responsibility regardless of fee levels or disclosure. In addition, fees for services to related entities, such as the 30,000, must be included when assessing fee-related threats.

1. AThe 30,000 for the subsidiary is irrelevant because it is outside the audit, and the internal audit outsourcing is acceptable if disclosed
2. BThe internal audit work would assume a management responsibility, which is prohibited for audit clients, and the fee ratio must be assessed including related entitiesCorrect
3. CThe internal audit outsourcing is permitted because non-audit fees are below the audit fee
4. DThe firm may take the internal audit work if the fee is below 70% of the average audit fee of the last three years